Blow for Woolies as Tata ends Indian venture

Date: October 25 2011

Colin Kruger

WOOLWORTHS appears to have been dumped by its Indian partner, Tata Group, bringing an abrupt end to one of the promising growth options for Australia's largest grocer.

Woolworths did not deny reports from India yesterday that it was considering its legal options after Tata, one of the country's largest industrial groups, decided to end a five-year partnership which introduced Dick Smith-style electronics stores under the brand Infiniti Retail.

According to the report in The Economic Times of India, Woolworths was surprised that the deal had a time limit on it.

Foreign retailers are prevented from having a direct presence in India but Woolworths was hoping to expand its relationship with Tata if the government eventually allowed foreign direct investment in the sector.

According to the report, Woolworths is expected to seek compensation for the ending of the venture, where it provides the distribution and logistics behind the electronics chain.

In a statement issued yesterday, Woolworths confirmed there were continuing commercial discussions with Tata, but did not directly address the central allegations.

''We are committed to our India business, our alliance with the Tatas and our retail electronics relationship with Infiniti Retail,'' it said.

''As the exclusive alliance partner to Infiniti Retail, we have provided the retail knowledge and wholesale support that have helped them to establish and grow the Croma-branded national retail chain. We continue to supply Croma as we have in the past.''

The deal, signed in 2005, was the fruition of a close relationship between Woolworths' then chief executive, Roger Corbett, and Tata's president, Ratan Tata.

''We are very delighted to partner the Tatas in their foray into consumer electronics and durables,'' Mr Corbett said in 2006, announcing the opening of the first store.

''We are encouraged by the growth in the Indian economy and as an exciting, emerging market for retail.''

Mr Corbett is currently the chairman of Fairfax Media, which publishes the Herald.

While the Indian venture forms a small part of Woolworths' business, the Tata link was seen as an important beach-head as the company explores business opportunities in India and other markets.

Woolworths established an Indian subsidiary earlier this year and appointed a senior executive to look at opportunities in other core areas like grocery and general merchandise as its domestic earnings and sales growth slow to single digits.

Shares in Woolworths were sold off in August after its departing chief executive, Michael Luscombe, warned that the retailer would record its slowest earnings growth in more than a decade for the current financial year.

Weak trading conditions, start-up costs for its hardware joint venture, and the lack of any sizeable acquisitions have reduced earnings momentum to as little as 2 per cent.

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